The Role Of Local Governments In Territorial Economic Dev
UCLG Policy PaperThe Role of Local Governmentsin Territorial g.org
UCLG Policy PaperThe Role of Local Governments inTerritorial Economic Development1
ContentsUCLG Policy Paper4The Role of Local Governments in Territorial Economic Development41. Introduction1.1 Purpose and context1.2 Why local governments matter to economic development1.3. Characteristics of local economic development (LED)44562. LED Enabling Policies82.1 Decentralizing responsibility, authority, and capacity82.2 Creating an enabling environment for LED92.3 Building an alliance of partners102.4 Establishing structures of governance and management112.5 Encouraging entrepreneurship and attracting investment122.6 Nurturing innovation142.7 Promoting the green economy162.8 Mitigating poverty, inequality, and social exclusion172.9 Fostering local culture2.10 The social economy, solidarity economy and the third sector. Another economy ispossible.192.11 LED and the Gender Focus192.12 Evaluation as a LED's tool203. Challenges3.1 Building capacity3.2 Responding to the challenges2525264. Conclusion and recommendations28Bibliography302
l Labour OrganizationKnowledge ManagementLocal Economic DevelopmentLocal Government AssociationLocal or Regional GovernmentMicrofinance InstitutionMicro, Small, and Medium-sized EnterprisesNongovernmental OrganizationOffice of Economic DevelopmentPublic-Private Partnership3
UCLG Policy PaperThe Role of Local Governments in Territorial EconomicDevelopment1. Introduction1.1 Purpose and contextThis paper examines the crucial role of local and regional governments (LRGs) ineconomic development. It addresses national and supranational governments,international development partners, as well as LRGs themselves and their localgovernment associations (LGAs). Its purpose is to identify the policy directionsurgently needed by each of these actors to enable LRGs to perform this roleeffectively for their citizens. It parts from the premise that LRGs are political actorsand they can and should influence the definition of policies, and not only in itsimplementation through small actions.The need for such a discussion at this moment is evident. As we prepare for HabitatIII in 2016 and the adoption of a New Urban Agenda for the 21st Century, cities, towns,rural municipalities, and their citizens face severe challenges. There is a widespreadshortage of opportunities for decent work. The International Labour Organizationhas estimated that the number of unemployed people globally surpassed 200 millionfor the first time in 2013, up by nearly 5 million in one year. Young people face thegreatest obstacles; in some places their rate of unemployment exceeds 50 per cent.There is increased poverty and homelessness and growing social and incomeinequality. Displacement of rural people from the land is driving rapid urbanizationin developing countries. Squatter settlements are proliferating and crime rates areincreasing. At the same time, global climate change is intensifying the vulnerabilityof the world's people to disastrous storms, floods, and droughts.In this difficult period, many countries have carried out programs of decentralization,devolving responsibility for numerous governmental roles to LRGs. When thisdevolution is planned well, implemented efficiently, and managed competently, LRGshave shown themselves capable of taking on additional responsibilities and handlingthem well. In our focus in this paper on local economic development (LED), wehighlight the many areas in which LRGs are the most appropriate tier of governmentto provide leadership and coordination, complementing the efforts of nationalgovernments.4
1.2 Why local governments matter to economic developmentThere are several reasons why local governments are indispensable to the process ofeconomic development, beginning with their traditional roles. LRGs must provide asecure and stable environment in which enterprises can flourish. They areresponsible for physical infrastructure – roads, water supply, waste management,information and communication technologies – all of which are necessaryprerequisites to economic activity. LRGs also address the needs of their citizens forpublic health, education, housing, local transportation services, cultural andrecreational facilities, child care, and other public goods and services that areessential to nurturing a healthy, skilled, and reliable workforce.In addition to these traditional roles, LRGs around the world are providing leadershipin job creation and economic development in their jurisdictions. As the publicinstitutions closest to the people, with an immediate grasp of the assets, deficits, andissues of their communities, LRGs are the most appropriate agents to convene all ofthe local economy's stakeholders: the chamber of commerce, the representatives ofmicro, small, and medium enterprises (MSMEs), trade and labour unions, primaryproducers, education and training institutions, agents of the departments andministries of other levels of government, non-governmental organizations andinternational development partners active in the community, as well as therepresentatives of those who are unemployed, marginalized because of their youth,gender, disability, or ethnic origin, or who are struggling to survive in the informaleconomy. LRGs are the best-placed initiators, catalysts, and drivers of processes thatengage these stakeholders in visioning the future, designing strategies, andimplementing economic development initiatives.Of course, local economic development is only one part of the total effort needed tocreate jobs and foster well-being. National development plans and policies arerequired for large infrastructural projects like energy grids, highways, railroads, andcommunications networks. National and supranational governments must alsomanage fiscal and monetary policies and negotiate international trade agreements.LRGs complement these national and supranational strategies, mobilizing localstakeholders to generate action from the bottom up. Here, at the local scale, there iscapacity to promote participation by all sectors of the society and to launch economicdevelopment initiatives that are inclusive, sustainable, and life-enhancing.5
The local level is the scale at which people meet face-to-face, create partnerships andalliances, find synergies and complementarities for mutual support, and devisestrategies relevant to the particular conditions of their community. It is in recognitionof this that many countries of the world have undertaken programs ofdecentralization, devolving to the local scale responsibility for economicdevelopment in their jurisdictions.In many cases, however, this process of decentralization is incomplete, as it has notincluded clear, legislated mandates with defined roles for the various tiers ofgovernment, nor has it provided adequate human and financial resources to LRGs tomeet their responsibilities. The consequences for many LRGs have been extremelystretched resources and barriers to their effectiveness as agents of development.To achieve effective decentralization of responsibility for local economicdevelopment, upper-tier governments must establish legal frameworks that provideLRGs with clear mandates in the field of LED and ensure that local authorities andtheir staff have the training and the financial resources to carry out their roles.1.3. Characteristics of local economic development (LED)Economic development is not an end in itself but one important means by whichpeople strive to enhance their well-being. As Amartya Sen and others have argued,the meaning of development is the increasing capability of people to live the life theychoose. The task of economic development practitioners is to help to make thispossible.This view of development has several important implications. Economicdevelopment is not only economic growth, important as that may be. To bedevelopmental, it must be inclusive, providing supports and opportunities for thosewho are typically marginalized, particularly women, youth, indigenous people, ethnicminorities, and people with disabilities. Economic development must also beenvironmentally sustainable, ensuring that future generations have the sameopportunities as those alive today. And economic development must be informed bycultural policies that enhance the capacity of people to assign meaning and purposeto their participation in the social and economic life of their community.An overview of the characteristics of LED as it is practiced around the world showsthat LRGs are the most aptly positioned agents to provide leadership and6
coordination of economic development in their communities. Definitions of LED vary,but all have these common elements:LED is participative. It is based on partnerships between local authorities, the privatesector, other public sector agents, and civil society, to foster local commercial activity.This can take many forms, including social economy enterprises responding to theneeds of marginalized groups, as well as micro, small, and medium enterprises(MSMEs). LED initiatives are community-led and locally owned.Local governments provide leadership and coordination in the planning andimplementation of LED initiatives, either directly or through delegation tocommunity-based agencies. LRGs build social capital, connecting local governmentswith their communities in a myriad of ways, generating innovative solutions to localneeds.LED plans integrate efforts across sectors, developing both the formal and informaleconomy, with a view to realizing community goals, such as better quality jobs,reduced poverty, environmental sustainability, and the inclusion of marginalizedgroups, notably women, youth, people with disabilities, and indigenous peoples.LED initiatives vary widely, depending on local needs and conditions. They may includethe development of infrastructure, research and innovation, skill training, attractionof new investment, technical and financial services to new and existing enterprises,supportive procurement policies, and support for marketing.LED is a long-term process, aimed at developing inclusive, resilient communities. LEDpractitioners recognize that it takes time to build local capacities and includemarginalized groups. They therefore use a diverse variety of indicators to measuresuccess.In the sections that follow, we expand on the themes we have introduced here.7
2. LED Enabling Policies2.1 Decentralizing responsibility, authority, and capacityIn recent decades, many national governments have transferred responsibility forseveral functions of the state to local and regional governments (LRGs). Both therationale and the methods of this devolution vary from country to country dependingon local conditions.There are, nevertheless, many common arguments for the devolution ofresponsibility for planning, financing, and managing a broad range of public functionsto LRGs. Bringing decision making and service provision closer to the citizens canmake authorities more accountable to their electorate, improve the relevance ofservices and public goods to local needs, give local residents greater opportunity forparticipation in the decisions that affect their lives, and thereby build democracy andpolitical stability.An important economic argument in favour of decentralization, as FranciscoAlburquerque (2013) points out, arises from the advantages gained by integratingsocial, environmental, infrastructural, and economic policies at the local scale. Inpractice, all of these local systems connect, overlap, and influence one another. Forexample, rural grain producers need not only seeds, land, and water but alsomachinery, means of transport, technical support, and financial services, amongother things. Urban commercial and industrial enterprises need basic infrastructure,raw materials, a labour force with appropriate skills and access to social servicessuch as health and education, a transportation system, and a food supply. The ruraland urban economies are completely interdependent, and no economic sector existsin isolation. Productivity depends on all of the sectors working together in harmony.From an economic point of view, Alburquerque says, all of these systems can beviewed as a local production system. Analysing, planning, and managing them as oneintegral system facilitates decision-making on key priorities. It promotes cooperationacross sectors, as actors in each of the separate systems come to appreciate theirroles in relation to one another. It also allows planners to identify the points in thesystem that provide the greatest potential for innovation and quality improvement.8
Economic development that is planned and managed locally also allows a communityto build on its unique strengths, which may lie in its natural resources, itsgeographical location, and/or the skills of its people. At the same time, it empowersthe community to protect and enhance its environmental and cultural heritage.There may also be disadvantages to decentralization, however, and there certainlyare several challenges to all of the actors involved in the process. We discuss these inSection 3.2.2 Creating an enabling environment for LEDDevolution places the LRG in a key economic leadership role within its community. Itgives the LRG the responsibility to create the conditions in which LED can flourish.This does not mean that the LRG should make investment decisions or plan the localeconomy. It does mean that the LRG is responsible for the creation and maintenanceof an enabling environment in which all economic actors – investors, workers,educators, financial institutions, service providers – can make good decisions andwork together to generate economic development.To create an enabling environment for LED, an effective LRG acts on several fronts:social, institutional, environmental, and economic. The nature of the conditions facedby each LRG, and the actions these conditions call for, vary widely from place to place.There are, however, several common tasks: creating municipal institutions that aretransparent and accountable, fostering relationships that generate the social capitalthat is critical to development, protecting the integrity of the environment and therights of workers, and, in a variety of ways, encouraging entrepreneurship andinnovation to create decent jobs in the community.Since conditions are always changing over time, an effective LRG is constantlymonitoring its environment at all scales, from global markets to national regulatorymeasures to neighbourhood social conditions, and adjusting its responsesaccordingly.In the subsections that follow, we highlight a number of the most salient policiesadopted by LRGs to create enabling environments for LED in their communities.9
2.3 Building an alliance of partnersLocal economic development, to be effective, equitable, and sustainable, requires thatLRGs build and maintain an alliance of partners in the community. All groups in acommunity who can affect LED, or who are affected by it, have a stake in the planning,implementation, and evaluation of LED initiatives.The composition of this group of stakeholders will vary from one community toanother, but in general it is important to include representatives of the followinggroups: The LRG itself, including the mayor, other elected officials, and the relevant staff, thegroup providing leadership in creating the conditions for successful LED;National and state/provincial agency staff, as sources of advice, technical assistance, andfinancial resources for LED;The local chamber of commerce and other business associations;Primary producer associations: farmers and fishers;Labour unions and trade unions;Micro, small, and medium-sized enterprises (MSMEs) and the informal sector, to theextent that they are organized separately from the larger businesses and associations inthe community;Schools, universities, and other institutions of higher learning that have the capacity toprovide analysis of the local economy, training in technical skills, and input to LEDplanning and evaluation;Financial institutions: banks, credit unions, and microfinance institutions (MFIs);NGOs and community organizations that are active in LED;International development partners that are working in the community;Newspapers and other media, to keep the public informed;Any social groups in the community with a strong stake in LED because of unemploymentor other forms of exclusion, for example youth, indigenous people, or ethnic minorities;Other persons of influence in the community, such as traditional authorities and religiousleaders, as well as groups representing the interests of women, to promote popularparticipation, to increase awareness of groups experiencing exclusion, and to strengthenthe transparency and accountability of the LED process.10
These alliances need to be created early in the process of developing a communitywide strategy for LED, and maintained constantly. They build trust and form the basisof long-term partnerships. The aim is to engage these partners in the creation of astrategic plan to which they are fully committed, to ensure that the strategy is morethan just a plan on paper. Several of the LED manuals noted in the Bibliographyprovide advice on making these processes truly participatory and the stakeholderinvolvement substantive.2.4 Establishing structures of governance and managementThe specific methods and structures through which stakeholders participate in LEDprocesses vary according to the size, resources, and complexity of the community andthe capacities of its LRG. The normal practice is to establish a core planning group.This group convenes the stakeholders and launches the consultation process leadingto the creation of a strategic plan for LED in the community.Let us call this core group the Office of Economic Development (OED), using theterminology proposed by VNG International (Budds et al. 2013). The key functions ofthe OED are to: Convene the stakeholders and lead them in the planning process; Serve as the staff to the stakeholders; Conduct research and provide information to the stakeholders; Coordinate the action plan devised by the stakeholders; Monitor and evaluate progress and report to the stakeholders; In some cases, the OED itself may also implement LED projects in the communityAlthough an action plan assigns tasks to a wide range of individuals andorganizations, the OED is responsible for coordination, and it may take on many ofthese tasks itself. These include such matters as: market research and feasibilitystudies, promotion and branding of the community, liaison between the LRG and thebusiness community, and raising funds for LED, especially for social enterprises thatmay not have access to normal commercial sources.In addition to the core group, it is also critical to establish a forum for theparticipation of the stakeholders beyond the initial planning period. This may serve11
as the governing body of the OED, or it may be an advisory body or reference group;this decision will depend on local circumstances. The function of this forum is to givegeneral direction to the OED, ensuring that the interests of all members of thecommunity are represented and addressed.2.5 Encouraging entrepreneurship and attracting investmentLRGs, usually acting through their OEDs, have developed a myriad of methods andtools for attracting and retaining investment in their communities and for fosteringentrepreneurship. Here we will mention them only briefly; there are severalexcellent LED manuals listed in the Bibliography that provide detailed advice in thisarea.LRGs vary in size, complexity, and endowments. In most countries of the world, theleading cities are the greatest engines of national economic development.Interm
UCLG Policy Paper 4 The Role of Local Governments in Territorial Economic Development 4 1. Introduction 4 1.1 Purpose and context 4 1.2 Why local governments matter to economic development 5 1.3. Characteristics of local economic development (LED) 6 2. LED Enabling Policies 8 2.1 Decentralizing responsibility, authority, and capacity 8 2.2 Creating an enabling environment for LED 9 2.3 .
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